USDA vs FHA Loans
Quick answer: USDA and FHA are both government-backed, but they fit different buyers. USDA requires no down payment for eligible buyers and is limited to eligible areas and households within an income limit. FHA requires a minimum down payment but has no location or income test, and it allows more property types and co-borrowers. Which fits depends on where you're buying and who lives with you. All loans subject to credit and property approval.
How do USDA and FHA loans compare?
The biggest differences are location, income limits, down payment and who can be on the loan.
| Feature | USDA Guaranteed | FHA |
|---|---|---|
| Backed by | USDA Rural Development | HUD's Federal Housing Administration |
| Where you can buy | USDA-eligible rural areas only | Anywhere, if the property meets FHA standards |
| Household income limit | Yes, by county and household size | No income limit |
| Down payment | Not required by the program for eligible buyers | Minimum down payment required |
| Upfront fee | USDA upfront guarantee fee, can be financed | FHA upfront mortgage insurance premium, can be financed |
| Ongoing fee | USDA annual fee, collected monthly | FHA annual mortgage insurance premium, collected monthly |
| Loan amount cap | No program maximum; limited by income and repayment ability | FHA county loan limits |
| Non-occupant co-borrower | Not allowed | Allowed in some cases, such as family members |
| Property types | Single-family homes, eligible condos, eligible manufactured homes | One to four units, eligible condos, eligible manufactured homes |
| Occupancy | Primary residence | Primary residence |
| Who counts for income | All adults in the household for the limit; borrowers for repayment | Borrowers only |
| Refinance options | Only for existing USDA loans; no cash out | FHA streamline for FHA loans; cash-out options available |
When does a USDA loan fit better?
USDA tends to fit when the home is in an eligible area, your household is within the income limit, and you'd rather keep cash on hand than put money down.
- You're buying in a small town or an eligible area near a Texas metro.
- Your household income, including other adults in the home, is under the county limit. See USDA income limits in Texas.
- Everyone on the loan will live in the home.
- The home is a single-family house, eligible condo or eligible manufactured home.
When does an FHA loan fit better?
FHA tends to fit when the home isn't in a USDA-eligible area, your household is over the income limit, or you need a co-borrower who won't live there.
- The address shows as ineligible on the USDA map.
- Adults in the household push total income over the USDA limit.
- A parent or relative who won't live in the home needs to be on the loan.
- You want to buy a two- to four-unit property and live in one unit.
How do credit requirements compare?
Both programs use automated underwriting and allow manual review, and lenders can set their own requirements for each.
USDA's handbook doesn't print a single minimum score; its GUS system weighs your credit. FHA publishes credit score thresholds tied to down payment in HUD Handbook 4000.1. Either way, the lender's own requirements apply too, so ask Danny Nassar, NMLS 220172, for the current requirements on both. More on USDA credit on our requirements page.
How do the fees compare?
Both programs charge an upfront fee that can be financed and an annual fee collected monthly, set by USDA and HUD respectively.
FHA requires MIP, which is not the same as PMI. FHA loans never have PMI. The amounts change and depend on the loan, so the useful comparison is two Loan Estimates for the same home. Danny Nassar, NMLS 220172, originates USDA and FHA loans and can prepare both so you can compare them side by side. Call 512-743-5512.
See also USDA vs conventional loans. All loans subject to credit and property approval.
Frequently asked questions
Which is simpler to qualify for, USDA or FHA?
Neither is simpler across the board. USDA adds location and household income tests; FHA requires a down payment. Which one you qualify for depends on your address, household and credit.
Can I switch from USDA to FHA if the house isn't eligible?
Yes, if you qualify for FHA. Tell Danny Nassar, NMLS 220172, as early as possible, because it changes your contract's financing terms and the cash you'll need.
Do USDA and FHA both have mortgage insurance?
Both have upfront and annual charges. FHA calls them mortgage insurance premiums; USDA calls them guarantee fees.
Can I use FHA or USDA for a duplex?
FHA allows one to four units if you live in one. USDA is for single-family homes.
Talk with Danny about your Texas USDA loan
Tell Danny the county you're buying in and who lives in your household. He'll walk you through the USDA rules that apply to you and the next steps.
All loans subject to credit and property approval.